Designation: A1068 − 10 (Reapproved 2015)Standard Practice forLife-Cycle Cost Analysis of Corrosion Protection Systemson Iron and Steel Products1This standard is issued under the fixed designation A1068; the number immediately following the designation indicates the year oforiginal adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. Asuperscript epsilon (´) indicates an editorial change since the last revision or reapproval.1. Scope1.1 This practice covers a procedure for using life-cycle cost(LCC) analysis techniques to evaluate alternative corrosionprotection system designs that satisfy the same functionalrequirements.1.2 The LCC technique measures the present value of allrelevant costs of producing and rehabilitating alternative cor-rosion protection systems, such as surface preparation,application, construction, rehabilitation, or replacement, over aspecified period of time.1.3 Using the results of the LCC analysis, the decisionmaker can then identify the alternative(s) with the lowestestimated total cost based on the present value of all costs.1.4 This standard does not purport to address all of thesafety concerns, if any, associated with its use. It is theresponsibility of the user of this standard to establish appro-priate safety and health practices and determine the applica-bility of regulatory limitations prior to use.2. Referenced Documents2.1 ASTM Standards:2E917 Practice for Measuring Life-Cycle Costs of Buildingsand Building Systems2.2 Other Documents:TM-5-802-1 Economic Studies for Military ConstructionDesign—Applications (12/86)Federal Office of Management and Budget Guidelines andDiscount Rates for Benefit-Cost Analysis of FederalPrograms and state documents for guidelines or require-ments.3. Terminology3.1 Definitions:3.1.1 common costs, n—costs common to all alternatives innature and amounts such as initial planning fees or futureannual inspection costs.3.1.2 discount rate, n—the investor’s time value of money,expressed as a percent, used to convert the costs occurring atdifferent times to equivalent costs at a common point in time.3.1.3 corrosion protection project, n—a project having adefinable, functional corrosion protection requirement that canbe satisfied by two or more systems.3.1.4 future costs, n—costs required to keep the systemoperating that are incurred after the project is placed in service,such as surface preparation, maintenance, rehabilitation, orreplacement costs.3.1.5 inflation, n—the general trend or rising prices thatresult in reduction of the purchasing power of the dollar fromyear to year over time.3.1.6 initial cost, n—the total of all costs, such as surfacepreparation, material purchase costs, and construction andinstallation costs, that are specific to each alternative and areincurred to bring each alternative to a point of functionalreadiness.3.1.7 material service life, n—the number of years ofservice that a particular material, system, or structure willprovide before rehabilitation or replacement is necessary.3.1.8 project design life, n—the planning horizon for theproject, expressed as the number of years of useful life requiredof the iron and steel product.3.1.9 rehabilitation cost, n—the total of all costs incurred toextend the material service life of a specific alternative.4. Summary of Practice4.1 This practice outlines a procedure for conducting anLCC analysis of two or more corrosion protection alternativesover a specified project design life. It identifies the project dataand general assumptions necessary for the analysis and themethod of computation.1This practice is under the jurisdiction of ASTM Committee A05 on Metallic-Coated Iron and Steel Products and is the direct responsibility of SubcommitteeA05.13 on Structural Shapes and Hardware Specifications.Current edition approved May 1, 2015. Published May 2015. Originallyapproved in 2010. Last previous edition approved as A1068-10. DOI:10.1520/A1068-10R15.2For referenced ASTM standards, visit the ASTM website, www.astm.org, orcontact ASTM Customer Service at

[email protected] For Annual Book of ASTMStandards volume information, refer to the standard’s Document Summary page onthe ASTM website.Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States15. Significance and Use5.1 LCC analysis is an economic method for evaluatingalternatives that are characterized by differing cash flows overthe designated project design life. The method entails calcu-lating the LCC of each alternate capable of satisfying thefunctional requirement of the project and comparing them todetermine which has (have) the lowest estimated LCC over theproject design life.5.2 The LCC method is particularly suitable for determiningwhether the higher initial cost of an alternative is economicallyjustified by reductions in future costs (for example,rehabilitation, or replacement) when compared to an alterna-tive with lower initial costs but higher future costs. If a designalternative has both a lower initial cost and lower future coststhan other alternatives, an LCC analysis is not necessary toshow that the former is the economically preferable choice.6. Procedure6.1 The procedure for performing an LCC analysis forcorrosion protection systems is summarized in the followingsteps:6.1.1 Identify the project objectives, alternatives, and con-straints (6.2).6.1.2 Establish the basic assumptions (6.3).6.1.3 Compile data (6.4).6.1.4 Compute the LCC for each alternative (6.5).6.1.5 Evaluate the results (6.6).6.2 Project Objectives, Alternatives, and Constraints:6.2.1 Specify the design objective that is to beaccomplished, identify alternative systems or designs thataccomplish that objective, and identify any constraints thatmay limit the options to be considered.6.2.2 An example is the design of a parking garage for aresidential development project. The system must satisfymandated objectives such as specified construction schedule,load factors, and clearance height. Available alternatives, suchas different objectives such as specified construction schedule,load factors, and clearance height. Available alternatives, suchas different corrosion protection systems or materials, mayhave different initial costs as well as expected future costs. Thesystem design may be constrained by access for futuremaintenance, number of footers, etc.6.3 Basic Assumptions:6.3.1 Establish the uniform assumptions to be made in theLCC analysis of all alternatives. These assumptions include theselection of discount rate, treatment of inflation, generalinflation rate, project design life, and desired comprehensive-ness of the analysis.6.3.2 Discount Rate—The discount rate selected shouldreflect the owner’s time value of money. That is, the discountrate should reflect the interest rate that makes the ownerindifferent about paying or receiving a dollar now or at somefuture time. The discount rate is used to convert the costsoccurring at different times to equivalent costs at a commonpoint in time.6.3.2.1 No single correct discount rate exists for all owners.Selection of the discount rate should be guided by the rate ofreturn on alternative investment opportunities of comparablerisk (that is, the opportunity costs of capital) or, in the case ofsome public organizations, on mandated or legislated federal orstate requirements.6.3.2.2 The discount rate may include general price inflationover the study period. This discount rate is referred to as thenominal discount rate in this practice. The discount rate mayalso be expressed as the real earning power of money over andabove general price inflation, referred to as the real discountrate.6.3.2.3 A nominal discount rate (dn) and its correspondingreal discount rate (dr) are related as follows:dr511dn11I2 1 (1)ordn5 ~11dr!~11I! 2 1where:I = rate of general price inflation.6.3.2.4 The same discount rate should be used when evalu-ating each design alternative. Table 1 contains a procedure tofollow when developing the discount rate. This procedure canbe applied by those who wish to select their own values as wellas those required to follow mandated or legislated require-ments.6.3.3 Inflation—This practice is designed to accommodateonly a uniform rate of general inflation. The LCC can becalculated in constant dollar terms (not including generalinflation) or current dollar terms (including general inflation).If the latter is used, a consistent projection of general priceinflation must be used throughout the LCC analysis, includingadjustment of the discount rate to incorporate the generalinflation (6.3.2.2). The percentage change in the GNP deflatorand producers’ price index are two broad indicators of generalinflation.6.3.3.1 If the user desires or is required to treat inflation onan incremental (differential) basis, or uniquely to each indi-vidual cost component (for example, energy costs), he or sheshould consult either TM-5-802-1 or Practice E917, respec-tively.6.3.4 Project Design Life—The project design life (3.1.8)should be established from mandated public policy, legislatedrequirements, or selection by the owner based on situationrequirements. The same design life must be used for eachalternative under comparison and for all cost categories underconsideration. The potential for future obsolescence, that is, thepotential that future changes may modify corrosion protectionsystem requirements, should be considered when selecting aproject design life.6.3.5 Comprehensiveness—The appropriate degree of preci-sion and detail to use in an LCC analysis is dependent on theintended use of the analysis. A less comprehensive or detailedanalysis may be sufficient for ranking many alternativesroughly, whereas a more comprehensive analysis may benecessary for selecting from among a few close alternatives. Inany case, omitting significant factors from an LCC analysisdiminishes the usefulness of the results.A1068 − 10 (2015)26.3.6 Sensitivity Analysis—No analysis can be more precisethan the accuracy of the data and assumptions used in thecalculation. The LCC can be calculated for a range of assump-tions when uncertainty exists regarding basic assumptions (forexample, cost estimates, design life, discount rate, etc.). Theresults of these calculations will show the user the extent towhich the results are sensitive to variations of the keyassumptions.6.4 Compilation Data—Compile the following data specificto each alternative under consideration:6.4.1 Initial Costs—The estimated dollar amount of all costsrequired to bring the alternative system to a point of functionalreadiness.6.4.2 Material Service Life—The number of years of serviceexpected of the alternate under study. Material service lifevaries depending on the coating material, environment, andapplication. Potential changes in environmental conditions thatmay affect the material service life should be considered. Jobsite tests, published reports, manufacturer product data, andlocal experience can be used to establish the service life foreach material. If the material service life is shorter than theproject design life (3.1.8), the analysis must include the futurecost to extend the service life sufficiently through rehabilitationor replacement in order to at least equal the project design life.6.4.3 Future Costs—Cost estimates should be made for allsignificant items that are estimated to be required to allow thecorrosion protection system to satisfy performance require-ments over the project design life. Common costs (1.1) may beexcluded without affecting the relative ranking of the alterna-tives under study. The cost estimates should be made inconstant dollars (not including inflation) in the same timeframe as the estimate of initial costs.6.4.3.1 Operating Cost—An estimate of the annual cost forlabor, power, and consumable materials and supplies requiredto have a functional corrosion protection system. Except forextreme environmental conditions, most corrosion protectionsystems do not have significant annual operating costs.6.4.3.2 Rehabilitation Costs—The cost of major repairs toextend the material service life to equal or exceed the projectdesign life. The years in which the rehabilitation is plannedshould be noted if more than one rehabilitation is anticipated.6.4.3.3 Replacement Cost—The timing and cost estimate forcomplete replacement of any corrosion protection systemcomponent. Care should be taken to determine whether theservice life of the replaced material or component will at leastequal the project design life. If not, rehabilitation or furtherreplacement will be necessary.6.5 Computation of Life-Cycle Costs—To compute the LCCfor a corrosion protection system, all relevant cost flows overthe design life of the project are discounted back to the presentand summed.6.5.1 Find the present value (PV) of each cost category (forexample, initial cost (IC) and rehabilitation or repair (R), usingthe appropriate discount formula in this section. Then sumthese present values to find the PVLCC, for example:PVLCC 5 PVIC1PVR (2)6.5.2 Initial costs are assumed in this practice to occur in thebase year (year zero). No discounting is required.6.5.3 Future costs expected to occur at a single point in time(for example, rehabilitation costs) can be discounted to presentvalue by multiplying the estimated current cost of the item bythe single present value factor as follows:PVAs5 AsS111drDn(3)where:TABLE 1 Discount Rate Procedure1.0 General—This procedure is intended to guide the user indeveloping a real discount rate, that is, the long-term rate of returnover and above the general inflation rate. This procedure can beused by those required to use rates specified by mandate orlegislated requirement, as well as those desiring to select their ownvalues. This procedure does not recommend any specific rates; thatselection is up to the user and should be made based on theconsiderations described in 6.3.2.1.1.1 Is there a discounted rate that must be used by policy, mandate,or legislated requirements? (check one):1.1.1 ____ Yes. If yes, the discount rate is ____ %1.1.2 ____ No. Proceed to 2.1.2 ____ Does the discount rate in 1.1.1 include inflation? (checkone):1.2.1 ____ Yes. If yes, the inflation rate is ____ % (proceed to 2.4)1.2.2 ____ No. The rate shown in 1.1.1 is the real discount rate(excludes general inflation) and can be used as dr in (Eq 3)2. If no discount rate is mandated, two approaches are possible:2.1 Select a long-term percentage rate of return on invested money,over and above the general inflation rate. This value can be used asdrin (Eq 3).2.2 Select a nominal discount rate (including general inflation): ____%=(dn).2.3 Select a long-term rate of general inflation: ____% = (I).2.4 Calculate the real discount rate (dr) for use in (Eq 3):dr511dn11l2 1A1068 − 10 (2015)3As= single amount,dr= real discount rate (Table 1), andn = number of years from year zero to the time of t